Chile - Schwager Coal Mine Modernization Project

FILE COPY RESTRICTED R e p o r t N o. P-134 This report was prepared for use within the Bank. In making it available to others, the Bank assumes no responsibility to them for the accuracy or completeness of the information contained herein. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATIONS of the PRESIDENT to the EXECUTIVE DIRECTORS on the PROPOSED LOAN to the CORPORACION DE FOMENTO DE LA PRODUCCION and to the COMPANIA CARBONIFERA Y DE FUNDICION SCHWAGER IN THE REPUBLIC OF CHILE July 8, 1957  RESTRIlCTED REPORT NO. REPORT AND RECO1ENqEDATIONS of the PRESIDErT to the EXECtUTIVE DIRECTORS on the PROPOSED LOAN to'the CORPORACION DE FO:.ILlNTO DE LA PRODUCCION and to the COiviPANTA CARBONTIFERA Y DE 7vUNDICION SCI-Y.AGER IN THE REPUTBLIC OF CHILE July 8, 1957  Renort and Recommendations of the President to the Executive Directors on a Proposed Loan to the Corporacion de Fomento de la Produccion and to the Compania Carbonifera y de Fundicion Schwager in the Republic of Chile 1. I submit herewith a report and recommendations on a proposed loan in an amount equivalent to $12Q2 million to the Corporacion de Fomento de la Produccion (Fomento) and to the Comoanis Carbonifera y de Fundicion Schwager (Schwager) to finance the foreign exchange cost of a oroject for developing and modernizing a rew. mine area. PART I - IIISTORTICAL 2. The Banik vras first approached in 19409 to finance the Schwager project for developing and modernizing of its coal mines. Work on the project had already started in 1942 but had to be halted because of a lack of funds. 3. A preliminary report by a consultant engaged by the Dank wVs favorable but consideration of the project had to be delayed until Schwager could complete arrangements with the Chilean Government to borrow a part of the local currency required for the project and to obtain a Government guarantee for a loan from the Bank. By the time these matters had been settled in 1953, the Bank could not take act ion on the project because of the deterioration in Chilets economic position.  - 2 - 4. It was not until June 1956 that the Bank could inform the Chilean Govern,ment that it ras prepared to resume lending operations in Chile xjy proceeding wTith three loarns including the Schwager project (R-979). In the same month, the Bank engaged another consultant to reappraise the technical and financial aspects of the project. After considering the consultant's report, the bank in February 1957 invited Schweger to send representatives to 7hashington for discussions and loan negotiations, The Schvwager representatives arrived at the Bank on April 22, 1057. The first three weeks were spent in obtaining more complete information on the com- pany, the project and the market for coal. Loan negotiations started in mid-May. 5. If the proposed loan is made, it would increase the total amount of Bank loans in Chile to $64.5 million0 If the proposed loan for the Lota project is also made, it would increase the total amount of Bank loans in Chile to $74.1 million. The Bank has already made the followaing loans: Principal Outstanding as of Year Serial No. Borrower Purpose tJnount, hlay 31, 1957 (FIF-15ns) 1948 5 CH Fomento & Endesa Porer Development $ 13.5 $ 10,678,000 1